Wednesday, April 27, 2005

More on the Bankruptcy Law

Without exaggeration, this is the most corrupt piece of legislation I have EVER seen.

I work in finance, and I can tell you that the credit card companies have pulled a monumental switcheroo on consumers and the poor. And what is so astoundingly insulting to me, is that this Republican party, this party that controls both the legislative branches as well as the executive branch, this party that trumpets the virtues of capitalism and free markets while demonizing Democrats for inhibiting capital flows and supporting "big government," has just imposed the biggest government intrusion into the purest form of Adam Smith's "Invisible Hand" (pricing between lender and borrower) this century has ever seen.

For all intents and purposes, the free market was working just fine within the credit card industry. CC companies lent money to borrowers. The risk they placed on these loans was high because, afterall, the laws were such that if a consumer filed Chaper 7, the credit card companies would not get paid anything. Understanding this risk very well, the CC companies priced their loans very high, at roughly 19% or so. Ignorning for now that this rate is in the range of old-time loan sharks whose questionable methods led to the passage of "Usury" laws which limited the percentage interest rate banks could charge on loans, this rate was more than adequate to compensate them for the bankruptcy rate implicit within the loan.

So, with the economy going well, and the bankruptcy rate low, the CC companies printed applications like they were going out of style. They sent them to everyone and everything. Stories of family pets receiving $10,000 credit lines were common. I, personally, received about 3 a day in the mail. They gave credit to anyone and everyone, more than they knew they should, to borrowers with poorer credit than they'd like.

None of this is problematic. The economy, working in cycles as it does, has a solution for this lending recklessness. As the economy turns down, and bad loans to poor credit risks become evident, the lenders that took more risk than they should have get crushed. It's Milton Friedman's wet dream in action. The Republican's should be cheering their beloved free market at work.

However, just as the economy is about to turn down, and the merciless cleansing of the credit cycle was to wash over these loan sharks in pinstripes, just as a maxed-out Visa and Mastercard were in the hands of every man, woman, child, and Chihuahua, just as traders on Wall Street were about to ass-fuck the shit out of the publically-traded shares of Goldman, Bank of America, Morgan Stanley, and MBNA...the Republicans stepped in and re-wrote the PRIVATE loan agreement between the CC companies and the borrowers, the American public.

See if you can guess if the contract's new terms were favorable to the large corporations, or America's poor. Can't guess? Here's a hint: Credit card companies gave more money to the political campaigns of Republicans than any other industry in the last election cycle...the nation's poor didn't give much, and their lobbyist aren't funded quite as well.

This change has greatly reduced the risk to the CC companies, but credit card holders are not receiving the correlating decrease in interest rate that is going along with it. The benefit goes wholly to the CC companies.

And is the reality TV-obsessed American public up in arms? Is the media even hinting at the hypocracy of this legislation passed by the supposed stanard-bearers of "small government" and capitalism? No, of course not. Credit card companies spend too much money on advertising on those networks.

The only positive thing I can take away from this legislation is that the Republicans have exposed themselves for the hypocrites they truly are. If ever I come across another right-winger who thrusts the neo-con's Orwellian "freedom" and "free markets" doublespeak in my face again, I will whip out this egregious example of corporate cronyism, and watch in guilty pleasure as he attempts the ideological gymnastics necessary to justify this complete and utter contradiction to his party's very foundation.